63 A. 621 | Conn. | 1906
While the judgment appealed from is based *589 on a ruling which sustained only some of the points taken in one of the sets of demurrers, and did not assume to deal with any other points, it should stand, if in any point whatever the complaint was incurably defective, whether the particular reasons which led the trial court to its conclusion were or were not sufficient.
The parties in the court below, and also here, have treated all the papers filed by each defendant, whether entitled demurrers or amended demurrers, or further demurrers, as constituting a single demurrer. We have therefore no occasion to consider whether filing the latest set might not properly have been held to operate as a withdrawal of those previously filed.
The complaint is attacked on two main grounds: misjoinder of causes of action and misjoinder of parties.
Causes of action, both legal and equitable, may be united in the same complaint when they are presented as grounds of recovery "upon claims, whether in contract, or tort, or both, arising out of the same transaction or transactions connected with the same subject of action," provided they "affect all the parties to the action," and do not require different places of trial, and are "separately stated." General Statutes, § 613.
The subject of the plaintiffs' action is the balance remaining unpaid of an indebtedness originally due to them from the Pittsburg and St. Louis Zinc and Land Company, a Missouri corporation, which became extinct in 1897; all the defendants but one being then shareholders in and directors of the company, and that one being the administratrix of the estate of the only other person who then was a shareholder and director. The object of the action is to collect this balance from the defendants.
To show that the subject of action constitutes the foundation of a cause of action against the defendants, the plaintiffs rely on certain transactions which occurred in Missouri. The subject-matter of controversy is the relations between the defendants and the intestate whose estate one of them holds, on the one hand, and the extinct corporation, on the *590
other. Any transaction which grew out of this subject-matter may be transactions connected with the same subject of action. Practice Book, p. 15, § 7, Rules of Court, p. 45, § 150. They are such if they tend or contribute to establish a duty on the part of the defendants to the plaintiffs with respect to the payment of the latter's claim against the company. The plaintiffs had a right to state in their complaint any number of transactions of that nature, that is, of acts or agreements having some connection with each other, by reason of which their legal relations to the defendants were altered. Craft Refrigerating Machine Co. v. QuinnipiacBrewing Co.,
The original relations of the defendants (other than the administratrix) and Fairman, on the one side, to the corporation, on the other, arose from the acquisition by each of certain shares of its capital stock, and by all together of the entire capital stock, on which, as they knew, nothing had been paid in except by a conveyance of lands worth not over one tenth of that capital. By and upon such acquisition each entered into contract relations with the corporation, the extent and obligation of which depended largely upon the laws of Missouri. Fish v. Smith,
These laws then provided that where the face value of shares in such a corporation, even if issued as fully paid, had not been actually received by the corporation in money or money's worth, those accepting a transfer of them should thereby become legally liable for the full amount of the difference between such face value and any value in fact received, provided they knew that such shares were not fully paid.
Neither Fairman nor any of the other defendants ever paid to the company the difference between the face value of their shares and the value actually received by the company in payment of them. These shareholders were therefore severally liable to the company for that difference, at the time of its dissolution.
Had a demand by the company upon any of them for payment *591
of this sum been made and not complied with, the company could have sued the party thus in default, and brought as many suits as there were defaulting defendants, without showing that the money was needed to pay its debts.Fish v. Smith,
When the Pittsburgh and St. Louis Zinc and Land Company was dissolved, it was subject to a considerable bonded indebtedness, and had no assets (aside from such demands as it might be able to enforce for a recovery of part of its capital converted by its directors) except its right to collect from its shareholders what they were liable to pay under their original contract of subscription, or, in case of those claiming under a title acquired from an original subscriber, by force of the novation accomplished when they accepted a transfer of their shares. The amount remaining unpaid on the original capital was not less than $90,000. Additional shares had been issued to Fairman and the other defendants (except the administratrix) to the amount of $100,000, on which nothing had been paid. Of the $190,000 thus unpaid, between $40,000 and $50,000 would be required to satisfy the outstanding indebtedness. It therefore became the duty of those on whom the office of winding up the affairs of the extinct corporation devolved to collect that sum from the shareholders.
But for how much was each responsible? The holders *592 of the thousand shares constituting the original capital had already paid in ten per cent. of what was due upon it, but whether this had been paid by part of the shareholders only, or equally by all, does not appear. In order to do full justice between the parties on whom demands might be made, it would be necessary to state an account between the company and each, discriminating between the liabilities involved by the ownership of shares on which nothing had been paid, and those involved by the ownership of shares on which something had been paid. It would be necessary also to ascertain the precise amount of the indebtedness to be liquidated, and the creditors to whom it might be payable.
Had the company remained in existence, no such account could be made up in any judicial proceeding, looking to a judgment against a shareholder, to which the company was not a party. Its position would naturally be that of a plaintiff; but if it had wrongfully refused to bring such an action, when to bring it was necessary for the protection of creditors, the latter, under the practice in this State, could have instituted a suit, making the corporation a party defendant, and asking for judgment against it and, as ancillary relief, the appointment of a receiver to collect the amount so found due out of equitable assets. Vail v. Hammond,
After the corporation went out of existence, it was equally necessary in any proceeding of such a nature, that its place, whether as plaintiff or defendant, should be filled by those entitled to represent it by legal succession. Whatever contractual obligations the shareholders had come under to the corporation, they had impliedly agreed, in case of its dissolution, to perform in favor of its statutory successors. The promise of each, in legal effect, under the laws of Missouri which governed his relation to the corporation, was to pay for his shares to the corporation or, in case of its dissolution *593
leaving debts unpaid and no other assets to meet them, to pay for them to those who at the time of the dissolution should be directors of the company. Fish v. Smith,
A statute of Missouri has also provided a special form of remedy in favor of creditors against shareholders. It is that if a corporation of the description of the Pittsburgh and St. Louis Zinc and Land Company "dissolves, leaving debts unpaid," suits may be brought against any of its stockholders, without joining the corporation, and that if judgment goes against the defendant or defendants and is satisfied on execution, the latter may sue the other stockholders for contribution.
As construed by the Missouri courts, in view of certain provisions in the Constitution of that State, the remedy thus given is limited to a recovery of what, if anything, may remain unpaid upon the shares held by one who may be sued upon the statute. Sears v. Missouri Mortgage LoanCo.,
As a voluntary dissolution of such a corporation can always be accomplished, under the laws of Missouri, by vote of a certain number of the shareholders, whoever accepts a transfer of shares in it is charged with knowledge that such a dissolution may take place, and comes under an implied contractual duty to respond to those statutory obligations that may be consequent upon such an event.
This duty he owes to any creditor who may claim the benefit of it by bringing an action at law. He must also, under the general principles of equity, be ready to respond to any judgment creditor who may sue him with other shareholders, by a creditor's bill. The defendants, other than the administratrix, having contracted this duty must perform it, and are properly sued in this action, which is in the nature of a creditor's bill and demands a judgment for damages against all the defendants. The demand is, indeed, not for a judgment in favor of the corporation. None could be rendered in favor of a corporation which has been dissolved. It is not for a judgment in favor of the primary statutory successors of the corporation, for they are the very ones from whom the recovery is sought, and have wrongfully refused to ask for one. It is for a judgment in favor of the only parties who could profit by it, and of parties to whom the defendants impliedly agreed to account for their unpaid stock.
The main purpose of requiring the plaintiff in a creditor's bill to show that he had exhausted his remedy at law was to assure the determination of his status as a creditor by a jury, if a trial by jury should be claimed by any party adversely interested. Under our Practice Act an issue for such a purpose could be raised in this cause by the answer. Lex noncogit ad impossibilia. The plaintiffs could not ask for a judgment against a corporation which was extinct. Nor was what was due them owed by the statutory trustees, its successors. The directors were answerable, as such, only to the extent of the assets which they had received. The shareholders were answerable, as such, only to the extent of what might be unpaid upon the shares held by each. But to make out *595 any claim against any defendant, the plaintiffs were bound to show that the corporation was their debtor when it was dissolved, and their allegation of that fact, if traversed, would be the proper subject of a trial by jury. General Statutes, § 721; Public Acts of 1905, p. 284, Chap. 56, § 2.
The administratrix of the estate of J. Yale Fairman, a deceased stockholder and director, who was the president of the company, has been joined as a defendant. The title to his shares of stock passed to her, upon his death. His contractual obligation, incident to their ownership, was also one that could be enforced against her, as his personal representative. The right to demand its fulfillment constituted part of the equitable assets of the Pittsburg and St. Louis Zinc and Land Company. Her codefendants, as trustees of the company, might have presented a claim against the estate of J. Yale Fairman and brought suit, if necessary to enforce it, for whatever of the amount due upon shares left by him it was requisite to collect in order to satisfy the company's creditors. It was assigned by the administratrix for a reason of demurrer, that there is no allegation that such a claim was presented. While this was not among the reasons stated in her demurrer which the court below sustained, it justified the dismissal of the action as against her, so far as it sought a recovery of any judgment for money, against the estate of her husband, on a personal obligation contracted by him. Grant v. Grant,
For all these reasons it was proper, in order to state the account correctly and conclusively, to make her a defendant. General Statutes, § 618. Should she hereafter be called upon by any of her codefendants for a contribution, it will be for her advantage as well as theirs that such an account could be stated in this proceeding.
The fact that the other defendants, as statutory trustees of the company, have the legal title to whatever may be due on such shares of the capital stock as have not been fully paid, does not exonerate them, as shareholders, from paying their indebtedness either to themselves as trustees, or to a receiver for the use of the plaintiffs, or to the plaintiffs, as may be deemed most equitable. Each of them is under a several liability to make such a payment to the extent of any balance remaining unpaid upon his shares, so far as may be requisite to discharge the plaintiffs' demand. Each of them is also, for the reasons already stated as applicable to the administratrix, a proper party defendant, in view of the necessity of making up an account which shall show precisely what may be equitably due from him, and which shall be binding upon all.
That such an account ought, if reasonably practicable, to *598 be one that will be binding upon all, follows from the right of contribution that would arise under the general rules of equity in favor of some shareholders as against others, should any of them be adjudged to pay more than their equitable proportion. No one can be adjudged to pay more than that, when the judgment is founded on an accounting to which all are parties.
Two of the defendants in this action, one residing in Missouri and the other in Kansas, have not appeared. They have had an opportunity to be heard, but have declined to avail themselves of it. It is made a cause of demurrer by each of the other defendants "that other stockholders live in Missouri, and do not all live in Connecticut, and that said alleged cause of action involves the relation between said corporation and its stockholders, and that complete justice can only be done by the courts of the State of Missouri, where said corporation was created and organized." Had the plaintiffs sued in Missouri, they would have found but a single shareholder and director amenable to the process of the court. The corporation, having been dissolved, could not, of course, be made a party there or anywhere. This single shareholder would have had much more cause than the seven Connecticut shareholders now can show, on which to ground a complaint for taking an account in such a proceeding, to ascertain what he ought to pay. To a suit brought in Missouri only one of the parties adversely interested to the plaintiffs could be compelled to respond. To a suit brought in Connecticut all of them but two could be.
The United States are founded upon the principle of freedom of commercial intercourse between citizens of the several States. Corporations of one State are commonly admitted by comity to do business in others, and are often formed or controlled by citizens of others. When, as is true of most corporations with a considerable capital, some of the shareholders are citizens of the State granting the incorporation, and the rest are citizens of other States, no action to compel the discharge of shareholders' liabilities, for the benefit of creditors, can be brought in any forum before which *599 all parties in interest can be compelled to appear. Unless, then, such an action can be maintained in a State of which all the shareholders are not citizens and in which they cannot all be personally served with process, a fatal defect would exist in the American system of remedial procedure. The courts of the United States would be as powerless as those of a State; for their jurisdiction in personam is also, under the arrangement of federal judicial districts, measured by State lines.
The problem is not as to the proper forum for winding up the affairs of an existing corporation in proceedings looking to its dissolution. That can only be accomplished in the State from which it derived its franchise. Hart v. Boston,H. E. R. Co.,
Each shareholder occupies, as to his fellow shareholders, the position of a cosurety. If he should be compelled to pay to the plaintiffs the entire balance due upon his shares, he would have the right incident to cosuretyship to resort to *600 any of the others who may have paid less, for partial indemnification.
It is therefore for the benefit of all of them that all have been joined in one action, in which equity can be worked out as between the defendants, as well as in favor of the plaintiffs.
Complete justice in this respect can be obtained nowhere, in a single suit, except by the voluntary appearance of all who may be named as defendants. More complete justice can be obtained in Connecticut than in any other jurisdiction, because most of the shareholders belong here. Under such circumstances, the plaintiffs were warranted in coming to this State for their remedy.
The complaint also sets up a distinct cause of action for a conversion, by J. Yale Fairman and all the defendants except the administratrix, of certain moneys and other property of the company, prior to its dissolution. These assets, it is alleged, amounting in value to over $75,000 and being part of the capital stock of the company, they as its shareholders and directors wrongfully and fraudulently distributed among themselves after December 31st, 1896, thereby leaving it wholly insolvent and without money or means to pay its creditors. As the bonds on which the plaintiffs' demand is founded were issued in 1891 and 1892, while Fairman and the other defendants, except the administratrix, were the directors of the company, a substantial fraud at common law is thus charged. All those participating in it would therefore have been jointly and severally liable to the company in an action of tort, at least to the extent of whatever might be needed to satisfy its creditors. An equitable remedy might also exist against them to compel the return of any specific property so fraudulently converted which could be traced into their possession.
The administratrix did not participate in the transaction, but the estate in her hands has presumably been enriched by its fruits. It may be that some of the identical assets so converted were held by Mr. Fairman at the time of his decease, and are capable of identification. If so, it may be *601
that she could be held as a trustee of them for those now representing the interests of the company. Reed v. Copeland,
Who can call the defendants to account for this transaction, or for the fruits received from it? The company has been dissolved. Those of its statutory trustees who survive are themselves the wrong-doers. A court of equity, under these circumstances, cannot hesitate to allow the creditors who have been defrauded to claim its protection. By the general rules of chancery, they would be compelled first to exhaust their legal remedies. This prerequisite our Practice Act dispenses with, when they ask for a money judgment in their complaint, as well as for satisfaction out of equitable assets. Substantially such a claim for relief these plaintiffs have made, as has been already stated. Regarded in the nature of a creditor's bill for the recovery of assets wrongfully appropriated, the complaint presents a cause of action against all of the defendants except the administratrix; and as to her it may be supported, as against the demurrers which she has filed, as a suit to recover the possession of specific property impressed with a trust in the execution of which the plaintiffs have the only beneficial interest.
They have alleged that by the law of Missouri the directors of a corporation, after its dissolution, are jointly and severally responsible to its creditors and stockholders to the extent of its property and effects that shall have come into their hands as its trustees. It does not appear that any property passed to any of these defendants, as trustees. But considered with reference to their bearing on the present suit, these provisions of the statute in question are simply declaratory of equitable principles. The plaintiffs do not, if they could, rely upon them for support. It is enough for their purpose that the statute turned the directors into trustees and gave them power, as the legal successors of the corporation, *602 to sue and be sued as such. No new cause of action, therefore, is stated by the reference to it.
Nor is any stated by the reference made to the section, the rubric of which is "Dividends may be declared, when." That concerns itself only with cash dividends of the ordinary kind, declared pro rata upon the shares of the capital stock. The conversion of the money and assets, effected after December 31st, 1896, as it is described in the complaint, was an extraordinary proceeding, by which both money and property other than money were distributed among the shareholders, and distributed without reference, so far as appears, to giving to each in proportion to his stock holdings.
Nor does the complaint set up any distinct cause of action on the "trust-fund" theory as it is received in Missouri. Whether if the directors had in good faith divided the assets of the corporation pro rata among the shareholders, believing that the property of the corporation which had been mortgaged to secure the plaintiffs' bonds was ample for the purpose, they could have been held liable to them if, years afterward, it turned out on foreclosure that the security was inadequate, is a question not so presented by the complaint that it can be raised on these demurrers. The distribution which they made is attacked as a wrongful and fraudulent one. That it was a misappropriation of a trust fund was a mere incident of the transaction, and did not change the nature of the cause of action.
It is stated in the demurrers that four causes of action are joined in the compliant: namely, one (a) for balances unpaid on shares of stock; one (b) against some of the defendants as directors of the company; one (c) against some of the defendants as trustees of the company; and one (d) to compel the defendants severally to refund portions of the capital stock paid to them respectively.
In our opinion, but three causes or action are set out, namely, one (a) in the nature of a creditor's bill, for balances unpaid on shares of stock; one (b) by creditors claiming the same balances by force of the Missouri statute expressly *603 giving an action to creditors, after the dissolution of the corporation; and one (c) to compel some of the defendants to refund portions of the capital stock paid to them respectively in pursuance of a fraudulent combination, and for money damages. They are called upon to refund, not because they are shareholders and directors, but because they have fraudulently appropriated property to which, or to the benefit of which, the plaintiffs have a superior title, to the extent of what was due them from the corporation at the time of its dissolution. They are described as directors and trustees of the company both because this was part of the story of the case, and because, having, as directors, become such trustees, they are the successors and representatives of the company and necessary parties to any proceeding in which its indebtedness to the plaintiffs was a material circumstance. They were under no responsibility to the plaintiffs by reason of property coming into their hands, as trustees; for when the corporation was dissolved it had no assets in its possession.
No objection on the score of duplicity has been taken to the complaint. The defendants raise no question as to the propriety, if the causes of action were such as could be joined in one suit, of not stating them in separate counts.
The three causes of action which the plaintiffs present arose out of several transactions, each of which is connected with the plaintiffs' demand against the Pittsburg and St. Louis Zinc and Land Company by force of the obligations assumed under the laws of Missouri by shareholders and directors in a Missouri corporation. These obligations compel them to pay for their shares in full, if necessary to satisfy creditors of the corporation, and, if called for by a similar necessity, to refund any portions of the capital stock which they may have wrongfully appropriated to their own use.
The only ground for asserting that there is a misjoinder of causes of action, which is worthy of serious consideration, is the claim that each does not affect all the parties to the action, within the meaning of General Statutes, § 613.
Every party to the action except the administratrix is *604 directly affected by the claim for balances due on unpaid stock, and she, as has been already stated, is affected by it in so far as she is a proper party to stating the necessary account.
Every party to the action, except the administratrix, is also directly affected by the claims arising out of a refunding of unlawful and fraudulent appropriations of the capital stock, and her demurrer, as has been already shown, does not sufficiently challenge the allegations in that respect which the complaint contains as to her liability.
The demurrers further suggest a misjoinder of parties, on the ground that the action is brought on several and not joint liabilities; that the liability of each defendant is separate and distinct from that of any other; and that the liability of each who is a shareholder is different from his liability either as a director or as a trustee.
The subject of action, viewed in relation to the several transactions alleged, is one in which every party to the record is concerned. The causes of action themselves concern every party except the administratrix directly, and her remotely. Each of the defendants either has an interest in each cause of action adverse to the plaintiffs, or is one whose presence is necessary for a complete determination and settlement of a certain question involved in it, namely, the proper accounting to determine what has been paid on each share of the capital stock of the company. All the defendants, therefore, were properly joined. General Statutes, § 618; Fairfield v. Southport National Bank,
It is true that the final judgment may go as to one cause of action against some or all of the defendants severally, and on another cause of action against some of them jointly. It is true that many separate and distinct issues may be closed between different parties and that separate trials may perhaps become necessary to determine them. But these *605 are common incidents of suits where both legal and equitable relief are demanded from numerous parties, on account of different transactions connected with the same subject of action.
It is also made a cause of demurrer that the Pittsburg and St. Louis Zinc and Land Company is not a party; that no proceedings against it have been taken in Missouri; and that no receiver of it has been appointed there.
It could not be made a party after its dissolution. Until after that event there was nothing to call on the plaintiffs to institute any proceedings; for no default upon the bonds which they held accrued until 1900. Such remedies as they had would not have been promoted by procuring the appointment of a receiver in Missouri. Such an officer would not have been the statutory successor of the company, and so a proper party to sue shareholders as a substituted promisee upon their implied contractual engagements. He would have been regarded, out of Missouri, simply as an officer of the Missouri courts, and it is at least highly questionable whether, as such, he could have maintained an action here. See Hale v. Allinson,
There is nothing in the reason of appeal based upon the refusal of the Superior Court to pass upon every ground of every demurrer. If those which were sustained had been sufficient, the course taken and the judgment rendered would have been entirely proper. We have examined all the reasons assigned, simply to determine whether the judgment could not be supported on other grounds than those on which it was rested in the court below.
The other reasons of appeal become immaterial, in view of the error found in disposing of the main demurrers.
There is error in the judgment appealed from.
In this opinion the other judges concurred.